Integrating Mobile Banking and Mobile Money with Islamic Micro Credit Integrating Mobile Banking and Mobile Money with Islamic Micro Credit. A product structure to consider. Khalfan Abdallah-MBA, AFIIBI, CIFE. Manager Product Development and Shari’ah Compliance –Gulf African Bank.

Main Points. CONTENT Mobile Banking and Mobile Money-An Outlook. Fundamentals of the Structure. Sources of Funding. Challenges and Way Forward.

Mobile Banking and Mobile Money-An Outlook. Mobile is already the largest banking channel Mobile banking functionality is quite varied. The mid- to late-thirties is currently the key demographic for mobile banking. Banks are increasingly shifting to a 'mobile first' approach. Sound mobile strategies, with effective execution, leads to significant financial benefits for those banks. Global mobile banking user base of some 1.8 billion people by 2019 (source: Juniper Research, KPMG analysis). Customers are using mobile money more than ever—in December 2015, there 411 million mobile money accounts globally. At least in 19 markets have more mobile money accounts than bank accounts. The industry is expanding to serve the needs of cross-border trade and regional economies. In 2015, by volume, international remittances was the fasting growing product. A limited number of products. More products and services should be launched and driven to make mobile money more sustainable, profitable, and relevant to customers in the long term. Mobile banking is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or tablet. This could mean transferring money, making a deposit or checking their balance. Mobile Money refers to uses the mobile phone to transfer money and make payments to the underserved. Facts: Mobile money is now available in 93 countries. 51 of 93 countries have enabling regulatory framework. Mobile money providers are processing an average of 33 million transactions per day. 134 million active account by December 2015. 47% growth in registered accounts. Airtime top up is leading service with large number of transaction. In its 2015 annual report, Safaricom Kenya reported selling 38% of total airtime via M-PESA. P2P is leading service with large number of transaction values. Safaricom Mobile money transfers service registered 30% increase in total transaction values to ksh 3.2 trillion Source: 1. http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/04/SOTIR_2015.pdf 2. http://www.businessdailyafrica.com/Corporate-News/Safaricom-posts-32-pc-growth-in-after-tax-profit/539550-3440638-yv38u6z/index.html

Bank and Mobile Money Interoperability. Future Forecast Micro-finance services will keep on growing with mobile money operators increasing their focus on micro-loans, micro-insurance and group savings. The other significant area will be merchant payments. Mobile money providers will liaise with MasterCard and Visa to issue companion cards facilitating merchant payments. We will see mobile money operators, in neighboring countries, come together on a common platform for facilitating international direct money transfers. Bank and mobile money interoperability is increasingly important. For deployments with functionality already in place, bank-to-mobile (B2M) transactions represent 4.5% of the total value entering the ecosystem. Good trend on offering B2M and M2B (mobile-to-bank) capabilities. The number of banks connected to mobile money schemes increased by 66% between 2013 and 2015, growing to more than 520 banks in 2015. Bank and Mobile Money Interoperability. Equity freeze staff recruitment and shifts it is operations to technology driven platform such as Equitel and agency banking. it appears that banked customers transferring money from bank accounts to mobile money accounts are using it primarily for cashing-out at agents. This indicates that customers are actually transferring money from bank accounts to mobile money accounts in order to proceed to a cash-out, and thus we can assume: • Mobile money is performing an important and valued role in allowing banked mobile money customers access to their funds; and • Banked mobile money customers are also sending money via P2P transfers to previously unbanked mobile money customers, closing the gap between these two worlds.

Fundamentals of the Structure. Ujrah Based Islamic Microfinance Facility. Ujrah is a fee charged to customer in consideration of services rendered by one party. Under this concept, the bank shall provide micro credit facility on the basis of Qardh (interest free loan). The fee shall be charged in consideration of actual services offered by the bank in relation to the credit facility such as: Application fee-lump sum fee for using the mobile banking platform to apply for loan (This might be grounded with monthly fee for mobile banking services). Credit risk insurance fee at fixed amount. Cash out-fee to M-Pesa agent. Transfer fee –B2M, P2P or Bill payments. The Shari’ah rules on fees to be charged are: Fees can be charged to recover actual cost. Fee must be a fixed amount which is not tiered with credit amount applied. Fee charged must be based on Shari’ah compliant services, benefits and privileges only that is offered to client No fee for extension or delaying loan payments.

Operation steps-with Bank Account Step 1. A customer with bank account makes loan application via Mobile banking platform menu together with acceptance of terms and conditions. Step 2. Bank receives application and approve the loan limit. Step 3. Bank disburse the loan to his Mobile money account (B2M) to be repaid in certain number of days. Step 4. Customer use cash such as cash out at agent, make purchases or transfer to another person. The bank and telecom should agree the fee sharing formula b

Operation steps-with Mobile Money Account Step 1. A customer with mobile money account activate loan application via telecom platform menu together with acceptance of terms and conditions. GAB-Mobile. Step 2. The customer virtual account is created to start saving via the account before he makes loan application. Step 3. Customer makes an application and based on the virtual account conduct, the loan limit is set. Step 4. Bank disburse the loan to his Mobile money account (B2M) to be repaid in certain number of days. Step 5. Customer use cash such as cash out at agent, make purchases or transfer to another person. Since main source of income is customer’s fees-the bank and mobile operator should agree fee sharing formula.

Sources of Funding. Cash Waqf ‘Am-The funds are invested by the bank and proceeds derived are distributed to the general public based on the waqf deed which shall allows the FI to offer it as guaranteed loans. In consideration for the fee income that the bank shall get from the ujrah microfinance facility, the bank as mutawwali (manager) shall waive service fee for the services rendered to the fund. Shareholders funds- a portion of shareholder’s funds can be marked for this product. Restricted Mudharaba capital- who shall invest the funds to the bank for the purpose. The fee income shared between the bank and the investor.

Challenges and Way Forward. Mitigants and Way Forward Operational efficiency risk. Default risk. Competition with lower fees. Consumer literacy. Partner with Telcom which has invested in state of art technology. Group credit risk insurance for death and default. Capitalize on Shari’ah compliance and efficiency tools. Consumer awareness programme.

Questions and Answers. Thank you.